BLBG: Pound Declines as G-20 Agrees on Bank Pay, Tighter Regulations
By Anna Rascouet and Morwenna Coniam
Sept. 25 (Bloomberg) -- The pound fell, reaching its lowest level against the euro in almost six months, as world leaders united behind a plan to regulate banker pay and tighten capital regulations for financial institutions.
The British currency dropped below $1.60 earlier as U.S. officials said Group of 20 leaders meeting in Pittsburgh are near a “broad agreement” on a plan to tie compensation more closely to risk. The pound dropped the most since April versus the dollar yesterday after Bank of England Governor Mervyn King said its weakness was “very helpful” to the U.K. economy.
“Sentiment is pretty poor for sterling,” said Steven Barrow, head of G-10 currency research at Standard Bank Plc in London. “It comes down to what King was saying yesterday. At the G-20, there are issues of bonuses and bank capital and those developments for bank regulation are going to be things that restrict bank profitability.”
Sterling depreciated to 91.71 pence per euro, from 91.29 pence yesterday, set for a third weekly drop, as of 11:23 a.m. in London. It reached 91.93 pence earlier, the weakest level since April 1. The pound fell to $1.6028, from $1.6059 yesterday, and traded as low as $1.5918, its weakest level since June 8.
The U.K. banking industry may shrink to as little as 7 percent of Britain’s gross domestic product, from 10.8 percent in 2007, former Bank of England policy maker Willem Buiter said in April. London’s square mile, as the country’s main financial district is known, generates a third of U.K. corporation tax revenue and as much as 15 percent of all tax paid to the government, Stuart Fraser, the City of London’s policy chairman, said on Sept. 1.
‘Social Usefulness’
Large banks should prioritize “social usefulness” above profitability, Financial Services Authority Chairman Adair Turner said in a speech on Sept. 23, adding that investors in banks may get lower returns as a result of the policy. Turner also repeated earlier comments questioning whether London should be maintained as a competitive financial center and identifying that some aspects of finance had grown beyond a “socially useful” size.
British Bankers’ Association Chief Executive Officer Angela Knight said yesterday Turner’s comments may hurt the industry.
“If we continue to demonize our own banking industry, there is no shortage of other jurisdictions which will leap at the chance of taking the business,” Knight said.
U.K. government bonds rose, with the 10-year gilt yield falling 3 basis points to 3.66 percent. The 4.5 percent security due March 2019 climbed 0.23, or 2.30 pounds per 1,000-pound face amount, to 106.68. The yield on the two-year note slid 1 basis point to 0.75 percent.
Sterling was poised for a second weekly decline against its U.S. counterpart. Prime Minister Gordon Brown declined to comment yesterday on the fall in the value of the pound, though he said he welcomed factors that strengthen the British economy.
“We want stable economic growth, and obviously all the factors that make for a stable economy I welcome,” Brown told reporters in New York when asked about the pound’s drop.
